Is 4.99% home loan rate as good as it gets?

ASB has reduced a number of its fixed home loan rates in its fourth cut this year. Photo: RNZ / Marika Khabazi

ASB is the latest bank to offer a home loan rate below 5 percent - but is 4.99 percent as good as it gets this cycle?

The bank said it had reduced a number of its fixed home lending rates on Monday.

It said it was the fourth time it had cut rates this year.

The two-year rate drops by 30 basis points to match ANZ's 4.99 percent.

The one-year rate drops 24 basis points to 5.25 percent and the three-year to 5.35 percent.

"We are serious about giving our home loan customers and first-home buyers interest rate relief, and that commitment should be evident in our consistent rate drops across January and February," executive general manager Adam Boyd said.

It also cut some of its term deposit rates.

Infometrics chief executive Brad Olsen said commentators kept saying every interest rate cut was taking rates to the lowest point they would reach this cycle, but then another cut would happen.

"It's likely that there might be some more downward pressure on rates as we move through the year, although part of that - at the moment at east - seems to be driven by more intense competition from the banks as they jockey for position and try to lock in some of that market.

"Margins don't show a lot of additional downside at the short end of the mortgage market at present, but banks trying to position themselves might push some rates lower."

He said it was interesting that ASB had matched ANZ on the two-year 4.99 precent rate but no one had matched Westpac's earlier three-year 4.99 percent rate.

Squirrel chief executive David Cunningham said it indicated all the main banks would drop their two-year rate to this level.

"The two-year wholesale rate is currently 3.5 percent, so that's a narrower margin to wholesale than we've seen in a long time. The flip side is that term deposit rates will likely fall below 4 percent, and soon."

"The Reserve Bank has all but promised 25bp cuts on 9 April and 28 May, with another 25bp highly likely [in July or August]. If the OCR does get to 3 percent, as the RBNZ strongly signalled in the press conference last week, then we should see rates settle in a 4.5 percent to 5 percent range for one- and two-year terms. That could last for a year or two. Adrian

Orr signalled that being being 'boring' and not moving the OCR for long periods is the ideal state for monetary policy, as it implies inflation is firming in the target band."

He said 4.99 percent was a "great rate" and provided certainty.

"[It] means that as a borrower, you get the lower interest rate immediately rather than waiting for what happens to the OCR and competitive responses over the next six months."

Shamubeel Eaqub, chief economist at Simplicity, said if banks were willing to give up margin, rates could drop by up to one percentage point further.